3 Ways to Not Lose Money in the Stock Market

People ask me all the time how I haven’t lost hoards of money like most others. How I do I pick winners every time?

Well the truth is that I don’t always pick winners. In fact, I’m sure the percentage of winners to losers is somewhere around 50-50%; however, I am able to keep my losses to a minimum because of my strict entry and exit plans before taking part of any stock.

If you have ever read any of my free stock recommendations, then you realize that I am a big user of technical analysis and for every stock I keep an entry, stop, and exit point. These three items I believe are an absolute must have before throwing your money into the market.

I’ll briefly go over each one so you understand what I am talking about.

Entry

Before entering any stock you should have a predetermined price at where you want to enter the stock. Basically you want to choose a price that symbolizes the stock has broke out or gained momentum.

Although my stock winners and losers percentage is 50-50%, my entries allow me to avoid stocks that are not right. If the stock never hits my price, than move on. There are so many things you can invest in. Don’t get caught up with any one stock.

Stops

There are various forms of stops, and different times to use them. A stop is a price point where you will exit the stock. Depending on your savvy, stops can be a changing variable. Typically you want your first stop at a point where you would consider the trade a failure. So if you buy at $15, then you might create a stop at $14.80.Listening to this stop is very critical because these are where most people incur the most losses.

The easiest way to avoid losses is to cut them. Trim the fat. If something is not working, then why should you still hold on to it? The more you lose the longer it takes to recover, and now your money is tied up.

If you are fortunate enough to see gains, then move your stops up. So if the stock goes to $16, then maybe your move the stop to $15.80. There are many different ways to determine a stop, but ultimately it depends on what you want.

Exits

Lastly, no trade is complete unless you cash out. The worst thing you can do is blindly go into any stock and not have some sort of price target. You will notice in my charts that I find potential price targets. This is one of the hardest things to do, but don’t get caught up with trying to squeeze every penny out. Any profit is better than no profit.

Once that price target is reached, then its okay to play with house money, but make sure to take some profit off the table or at least move your stop up.

When implementing these three items it is very important to stay discipline. Don’t change anything on a hunch.Unless there is some strong evidence to change your initial stance, then don’t do it. Ultimately that is how you keep your losses to a minimum and profits to a max.

You can learn more about techincal analysis through Chart Pattern Analysis.

April 22nd, 2009 

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